A recent PPI "Trade Fact of the Week" notes that: A Chinese-Made DVD Player Contains Almost 400 Western, Japanese, and Korean Patents (June 20), and that a significant share of the income earned by making them is exported to foreign patent holders:
Down the coast of China, from Tianjin through Shanghai and Fuzhou down to Shenzhen, about 150 manufacturers pump out about four-fifths of the world's DVD players. Last year, 46 million of them went to the United States, at a border cost of $3.4 billion. The transaction seems relatively simple: a visible physical flow of DVD players from China to the port at Long Beach and a second flow of cash from American retailers back to China, both recorded in trade statistics by Customs Agents and announced by the Bureau of Economic Affairs each month. But beneath both lie some deeper currents that trade statistics do not record....
The Chinese manufacturers, at least for now, are not creators of the players. Instead they are contractors for a dozen or so big Japanese, Korean , U.S. and European brands. These rich-world firms design the DVD players and own the patents for the core technologies -- reading discs, compressors for digital data, conversion processes for images, etc. -- the players contain....
Royalty payments for these patents mean that a large fraction of the money paid by retailers to manufacturers does not stop in China, but instead flows through and back out. The store price of a typical player has dropped since 2000 from $300 to $70-$90; and the total payments to patent pools for a single DVD player range from $14 to $27, or from a fifth to two-fifths of the sales price. They break down as follows...
...the river of cash flows into China as the DVD players flow out; and a good deal of it stops there.... But more than most realize flows straight through, beyond the reach of trade statisticians, and back out to Japan, Korea, Taiwan, Europe, and the United States itself.
There's a lot more in this relatively short article (for example, a discussion of patent pools), and the PPI TFWs always have a set of interesting links at the end.
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